L.A. area nation’s most expensive housing market

When it comes to buying a home or renting an apartment, the Los Angeles-Orange County area is the most expensive market among the nation’s 100 biggest metropolises, according to a report released Thursday by the real-estate website Zillow.

Residents here spent a bigger chunk of their income on housing in the second quarter of the year than those in other large metro areas in the nation, according to Zillow’s research.

“In the Los Angeles area, home values have been growing at a very aggressive pace because of a shortage of inventory and investor interest and a lot of (housing) demand has been diverted to renting,” Zillow economist Skylar Olsen said.

At the same time, the resulting increases in rent and mortgage payments have been outpacing income growth, she said.

The site’s analysts determined that in the Los Angeles Metro area, Zillow’s home value index in July was $529,200, which generally jives with the median price calculated by other market trackers, and its rent index was $2,392.

For the second quarter, the area’s median annual income was $59,424 and it would take 42.6 percent of that to fund the mortgage payment and 47.9 percent to pay the monthly rent, Zillow said.

San Francisco, always an expensive market, was the only other metro area where a homeowner would give 42.6 percent of their income to pay the mortgage.

By comparison, the Zillow’s national home value index in July was $174,800, its rental index was $1,319 and the second quarter median income was $53,216, the company said, and 15.3 percent went toward funding the mortgage and 29.5 percent went to paying rent.

While those numbers are much better than those for Los Angeles, Zillow said that only a dozen large metro areas have both affordable for-sale and rental housing.

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The numbers show that the Los Angeles area is still feeling the residual effects of the housing market meltdown that saw prices collapse and foreclose activity hit record levels. That activity is now back to pre-recession levels, though.

There are two main concerns, Olsen said.

“If you are paying such a large fraction of your income on rent, you’re probably not saving very aggressively at all and may be a long-term renter. That’s going to cut into your retirement,” she said. “Things are only looking as good as they are, and I’m saying that with a wink, because mortgage rates are still low. When they increase to 5 percent we’re going to be in very deep waters, and housing is going to look less affordable in Los Angeles and other California metro areas.”

Robert Kleinhenz, chief economist at the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp., said Zillow’s report shows the same trend that other market trackers have noted.

“Home prices are more expensive in the L.A. area, no matter how you slide and dice it,” he said. “They are more likely to head up as opposed to heading down in the future and interest rates are likely to head up rather than head down over the next several months. So affordability should fall further and not necessarily improve.”